‘Will stick to guidance of more than 10% growth in gold loans’ | The Financial Express

‘Will stick to guidance of more than 10% growth in gold loans’

We have approval to open 150 branches this fiscal. In the September quarter, we have opened 24 branches. Digital initiatives are also picking up which will add to the momentum.

‘Will stick to guidance of more than 10% growth in gold loans’
But then, because of our service quality and quick turnaround time and probably due to the loyalty to the brand, we are getting customers.

Gold loan major Muthoot Finance, which has recorded a muted loan growth in Q2, believes that the migration to higher interest rate loans from lower-interest teaser loans will start contributing towards an expansion in yields in subsequent quarters. George Alexander Muthoot, MD, tells Sajan C Kumar that the company will be able to stick to the earlier guidance of more than 10% growth in gold loans for FY23. Excerpts:

Reasons behind lower profit in Q2 despite increase in AUM?

Though the net profit came down to Rs 867 crore compared with Rs 994 crore, it grew 8% on a quarterly basis from Rs 802 crore. The reason behind  lower profit in Q2 was that we had a lower-interest scheme (teaser rates) running during the year-ago period. While we had stopped that scheme and shifted to higher interest rate regime, the effect of that will come into fore fully in coming quarters. Going forward, you can see the profit going up, and precisely that’s why we witnessed higher profits sequentially in Q2.

Also Read: Emami Q2 net down 2.76% at Rs 180 cr

Given the Q2 performance, do you foresee any difficulty in achieving the gold loan growth guidance of 10%-plus for FY23?

We have two more quarters to go and we hope that we will be able to do that. We are trying our best and we are not changing our guidance. We have approval to open 150 branches this fiscal. In the September quarter, we have opened 24 branches. Digital initiatives are also picking up which will add to the momentum.

How do you see the competition from banks in the gold loan space?

Earlier, banks were not keen on gold loans. In the last one-two years, they have aggressively been marketing the product, as many of their other loan portfolios were not doing well. Because of the widespread nature of the banks, their presence is going to make significant impact in the gold loan market. As a result of it, some new customers have gone to banks, giving competition to companies like us and that is also one of the reasons behind  growth not coming in on expected lines. But then, because of our service quality and quick turnaround time and probably due to the loyalty to the brand, we are getting customers.

What is your response to the perception that switching back to high interest rate regime may hit the growth prospectus?

It is not the case that if you reduce the interest rate, you will get all the business. It is based on the customers’ comfort of doing business, which we have developed over the decades. It is a temporary phenomenon that some new customers have gone to banks, things will revert and that’s why we expect to see good loan growth in coming quarters. Even otherwise, we have been seeing good customer acquisition because our tenures are normally very short, about three-four months. Most customers close their loans in three-four months and we have to get new customers.

Do you foresee a pressure on margins because of competition? What about your cost of funding?

It is not pressure on margins. We have consciously reduced our yields and that’s why our margins have come down. As a result of it, we saw a dip in the profit. Now that we have stopped low-interest loans, we will be able to make higher profits. We can easily get good funding from banks because we are the highest-rated gold loan company. Today, our capital adequacy is more than 25%, and for us borrowing cost is lower compared to others.

How is the non-gold business doing for you?

We are doing the home loan business which we are going to expand. Now that Covid-related issues are behind us, we are going to give more thrust to home loans, personal loans and vehicle loans. All those non-gold businesses are currently contributing around 10% to the total business of the group. The proportion of the non-gold business may go up to 15% to 20% in the next five years.

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First published on: 12-11-2022 at 00:45 IST